This book is the product of forty-eight years spent studying Ayn Rand’s philosophy of Objectivism and the science of economics. When I read Atlas Shrugged in 1962, I was stunned that Ayn Rand rejected everything I had been taught in two economics courses. Like most of economics in 1962, the purpose of those courses was to justify government intervention in the economy. Ayn Rand advocated laissez-faire capitalism, that is, an economy with no government intervention. I set out to find the truth. Forty-eight years later, I have learned a lot about what is wrong with modern economics and where much of the truth lies. In particular, I have figured out some of the implications for economics of Ayn Rand’s concept of objective. The purpose of this book is to communicate that knowledge.

To the best of my knowledge, this book represents the first attempt to rewrite economics in the light of Ayn Rand’s philosophy of Objectivism. As such, it is an application of Objectivism to the theory of how a free economy works, that is, to the theory of how men’s independent, self-interested actions to produce and exchange economic values are integrated into an economic system. Ayn Rand did not leave us a new economics, but something much more important—a philosophical foundation for all the special sciences. My purpose is not to present the Objectivist philosophy, but to apply Objectivism to economics. For an authoritative account of Objectivism, there is no substitute for Ayn Rand’s own writings.

This book is written for any man who wants to know how a free economy works and/or some of the implications of Ayn Rand’s philosophy for economics. In the body of the book, I have done my best to presuppose no knowledge of economics or Objectivism. I have confined my critique of modern economics to four appendices. Particularly in the appendices, I refer frequently to modern economics and modern economists, by which I mean academic economists, that is, economists employed in colleges and universities. By “modern,” I mean roughly the last fifty years. Undergraduates are taught essentially the same economic principles today that I was taught in 1960.

This is not a disinterested study. If one wants to live on earth, what is required to sustain man’s life on earth is of urgent interest. The subject matter of economics is how the members of an economic system obtain the material values of man’s life, such as food, clothing, and shelter. These things do not fall from heaven. They are the result of a specific and, in the history of the human race on earth, an unprecedented economic system.

In principle, the fundamental choice of economic systems is between laissez-faire capitalism and government controls. In politics, the equivalent choice is the choice between freedom and tyranny. In terms of concrete results, this is the choice between life and death. If one chooses life, then one chooses freedom, which includes economic freedom, and economic freedom, if it means anything, means laissez-faire capitalism. Unfortunately, economic freedom has no definite meaning to most people. They take it as meaning today’s mixed economy, which is not free, which is far from laissez-faire, and which has been sliding haltingly, but inexorably, toward complete state control for over a hundred years. In the concept “laissez-faire capitalism,” laissez-faire is redundant. In principle, anything other than laissez-faire is not capitalism and is not free. Consequently, throughout this book, I use the terms free enterprise, free economy, free markets, market economy, and capitalism interchangeably, to mean the same thing, that is, laissez-faire capitalism.

In the slide from freedom toward tyranny, modern economics has played a not inconsequential role. For a hundred years, all of its esoteric theories have carried a single message that the general public has absorbed and that they now take as self-evident—the message that laissez-faire capitalism is impractical.

The practicality of capitalism is my general thesis; Ayn Rand’s concept of objective is my starting point. The general reader may be surprised to hear that philosophy has implications for economics, but I promise that if this seems unlikely here, at the beginning of the book, it will seem inescapable by the end.

The philosophical overview of my book is this: Modern economics is the product of modern philosophy. Since on every important issue, Objectivism is the opposite of modern philosophy, Objectivism changes everything about economics. This includes economics’ method, the conception of the economy, the meaning of competition, the conception of price, the principle of gains from trade, the nature of business costs, the concepts of supply and demand, the theory of price, the role of scarcity, and the theory of aggregate production. Overall, as the result of all the preceding, Objectivism confirms the practicality of capitalism.

Economics is a positive science, not a normative science; that is, economics is descriptive, not prescriptive. Economics can tell us what the effect of a minimum wage law is on employment, but economics cannot tell us whether that effect is good or bad. Good and bad are concepts of evaluation. They presuppose a standard and ultimately a system of morality. Economics is not ethics. Nevertheless, economics is not cut off from ethics. Ayn Rand defined ethics as “a code of values to guide men’s choices and actions” (1964, 2), and some such code, explicit or implicit, underlies everything men do. This includes the work of economists in analyzing an economic system.

Ayn Rand’s ethics of rational self-interest is an ethics of egoism, the view that selfishness is a virtue and the individual should be the beneficiary of his own actions. Her ethics is my ethics. By contrast, for the last hundred years, economists have presupposed the opposite ethics as the base for both generating and evaluating theories: that ethics is altruism, the morality of selflessness and self-sacrifice—the morality of the Judeo-Christian tradition—the morality that dominates our age and that has dominated Western civilization for two thousand years.

The clash between altruism and capitalism is irremediable. Capitalism is the economic system of self-interest. Capitalism depends on self-interest, it encourages self-interest, it sanctions self-interest. At every level and in every detail, the motivation of self-interest is the motivation of capitalism. Consequently, the altruists have loathed capitalism from its beginning in the Industrial Revolution. This loathing is the fundamental cause of “the sweeping market reforms that economists have long advocated” (Mandler 1999, 151).

The primary purpose of economics is to identify, interpret, and explain how a capitalist economy works. Altruism assured economists that capitalism is evil in advance of that knowledge. The evil consequences of this belief permeate all of economics, damning capitalism in both theory and practice. In theory, capitalism never had a chance. Since an evil system cannot work, capitalism was convicted a priori. As for capitalism’s practice, economists’ commitment to the immorality of capitalism blinded them to the facts. Every datum, every event, every phenomenon, every result, every aspect of capitalism was twisted and distorted out of any resemblance to reality in order to make it conform to the altruist agenda. Ayn Rand’s refutation of altruism makes it possible for the first time in history to present the theory and practice of capitalism objectively, untouched by moral distortion. This is the first study of economics to take advantage of that fact, and in the end, an objective perspective is the primary value I have to offer.

A note to the businessmen in my audience: Qua businessman, a man does not need to know economics. If he does know it, his knowledge does not affect his strictly business decisions, such as whether or not to raise his price when his costs increase. But each businessman does need to understand economics if he wants to defend his business against those who want to seize it or shut it down or confiscate his profits. A businessman does not need to understand economics in order to run his business successfully—just in order to keep it. That is the understanding I am offering here.

I would like to suggest to those who know something about economics that they begin by reading the first three appendices. My theory departs radically from standard economics and I have found that people with some background in economics often do not understand me, particularly the fact that I have abandoned supply and demand curves. Appendices A, B, and C present my critique of modern economics and explain why I have taken the direction I have.

I also call the reader’s attention to the Exegesis and Glossary (pp. 333–35). This overview of the various meanings of the concept of value can help one to keep these meanings straight as one reads the text.

The modern context requires that I mention that throughout this book, as well as in this preface, I use the terms “man,” “he,” and “his” in the generic sense, meaning human beings in general. I am unalterably opposed to the current fad of pretending that, after a thousand years of absolute clarity on the subject, the generic use of man somehow excludes women.

I am indebted to many friends and colleagues for helpful comments on this project at various stages over the twenty years of its development. Some of them have forgotten helping me, but I remember. They include Robert W. B. Love, Jr., Young Back Choy, Charles Clark, Daniel Drake, Israel M. Kirzner, Walter J. Primeaux, Jr., Warren Samuels, Gary Schuld, Gordon Tullock, Harry Binswanger, Peter Schwartz, and Mike Berliner. Mary Ann Sures, persuaded me to direct my book to the general reader. Anthem Foundation’s grant to St. John’s University reduced my course load from three to two in the fall 2005 semester. John Ridpath gave me line-by-line comments on many chapters. Marlene Podritske greatly improved an early version of the manuscript. Donna Montrezza contributed important grammatical points. Finally, the lion’s share of the line editing fell to Darcy Lorin, who meticulously copyedited most of the present version and saved me from many errors.

My special thanks go to those who read the entire manuscript: to my brothers Robert and Donald who responded as noneconomists to a book written for noneconomists; to Leland B. Yeager, who gave me his usual thoughtful comments; and especially to my most dedicated and relentless editor, M. Kathryn Eickhoff, who read everything and many chapters more than once, who gave me detailed editorial comments on the entire book, and on many chapters more than once, and who brought the invaluable perspective of a business economist to my book and kept me from insulting that venerable group. Finally, my most reliable supporter has been Shrikant Rangnekar, who changed the book’s structure with his observations, who formatted the book for publication, whose enthusiasm for my project has never lagged, and who has been the main force behind its appearance in its present form. I am grateful to all these people, and all of them are innocent of any errors that may remain.

​M. Northrup Buechner
​New York, NY
​November 2010